Buyer Tips in Low Inventory Market
LAST UPDATED: 09 February 2021

Inventory and economics create the demand that produces real estate market conditions. While buyers don't like to hear the term "Seller's Market" any more than sellers like to hear that it's a "Buyer's Market", these terms simply convey the current inventory or market absorption rate. The absorption rate is calculated by dividing the number of homes sold in the allotted time period by the total number of available homes.

How buyers can prevail in a low inventory market:

  1. The first step is to acknowledge and understand that you are in a seller's market and adjust your homebuying strategy to reflect it. One way to determine the market conditions is to understand the absorption rate. The absorption rate is simply how many months or days it will take to sell all the remaining inventory on the market in a given area and or price range. Your real estate agent can let you know the market absorption rate for your selected property type and price range. Another measurement that indicates a strong seller's market is the sell-to-list ratio which is the final sales price divided by the last list price expressed as a percentage. A sell-to-list ratio above 100% shows that it's a hot real estate market experiencing multiple offers with some over the asking price. A sell-to-list ratio of 98% or 99% indicates a seller's market while lower ratios in the 83%-88% range indicate a distressed buyer's market.
  2. In a strong seller's market, make your best offer or a strong offer first. Your desired home is likely to be desired by several other buyers at the same time.
  3. Be mentally prepared and ready to strengthen your offer should competing offers occur. In some situations, an escalation clause of 2-3 percent more than the highest offer up to a pre-determined offer cap can help you prevail.
  4. Keep counter-offers to a minimum. When a seller has more than one offer on the table, try not to be the buyer who "nickels and dimes" the seller. Sellers may work with whomever they choose and you run the risk of losing the home to a buyer who is willing to pay the same price but has been easier to work with.
  5. Show cash strength. Offer a higher than normal earnest money deposit to show the seller how serious you are about buying their home.
  6. Keep your offer clean and attractive. In a strong market waive the financing contingency and shorten inspection periods. Sellers will not want to take an offer with multiple contingencies in a hot market because they run the risk of taking their home off the market for a "Maybe". Clean offers often prevail even when they are not the highest price offer on the table.
  7. Should you need financing, be ready to with money in the event of a low appraisal. Appraisers can only look back at past sales to determine the value of a home. In an improving market, this makes home appraisals difficult. Setting aside some money to bridge the gap between the appraisal value and the contract purchase price will help lenders fund the loan.

Give us a call anytime to discuss your real estate goals and how Pfeifer Realty Group can help you achieve them.

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